Loan closes, but officer advises USDA borrowers of shutdown risk

For borrowers awaiting approval from the U.S. Department of Agriculture (USDA) to close on their newly purchased homes, the conclusion of the government Jan. 25 meant the end of weeks of anxiety and feeling helpless to the whims of forces beyond their control.

Victorian Finance, LLC, Loan Officer Jessica Herdman, who previously told Dodd Frank Update about the trials and tribulations she navigated alongside two of her borrowers during the partial government shutdown, said it only took two days after the shutdown ended for her borrowers to be cleared to close on their mortgage transaction – after roughly three weeks in limbo.

Although ecstatic for the wait to be over, the looming threat of another shutdown has made Herdman cautious when advising other borrowers about USDA loans.

“I am so happy to finally have a resolution, and everyone is very relieved to be closing at last,” Herdman said. “However I’m honestly shying away from recommending USDA loan options at this point. There is the looming threat of another shutdown on (Friday), so I am making that possible delay clear to anyone who might be thinking of relying on USDA financing.”

The uncertainty cast over the USDA loan program by the shutdown is particularly unfortunate considering that it can be the most affordable option for qualifying borrowers in rural areas, such as those Herdman serves around her primary market of Pittsburgh.

However, having experienced first-hand the impact a shutdown in the middle of a closing a USDA transaction can have on borrowers, as well as sellers awaiting proceeds from a sale, Herdman feels obligated to let her borrowers know about the potential risks involved.

“If a client truly wanted to pursue a USDA loan at this point, I would not try to dissuade them, as long as all parties were aware that the closing date would depend on forces outside of our control,” she said.

Herdman has had to advise one borrower about the potential pitfalls involved with pursuing a USDA loan and helped them work out a Plan B in case forces beyond their control make their first choice too cumbersome.

“The possibility of another USDA-loan delay just came up in conversation with a new client on Friday who will be buying in rural Washington County, south of Pittsburgh,” she said. “Fortunately, they also qualify for Federal Housing Administration (FHA) financing, and had cash reserves to make the FHA minimum downpayment, so they opted to begin house-hunting with an FHA preapproval for now. They may still switch to USDA once we learn if there will be a second shutdown. If another shutdown is averted, the USDA option with zero downpayment is still very attractive to first-timers.”

Shortly after the shutdown began in December, the U.S. Department of Housing and Urban Development (HUD) stated that it would put on hold the processing of FHA mortgages applications. The agency later reversed that position, in part, stating that it would process loan applications only for single-family homes, and that processing times could be longer than usual.

Congress and the Trump administration announced Monday that they had reached a tentative agreement to keep the government fully operational.

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The Federal Reserve Board, Office of the Comptroller of the Currency and Federal Deposit Insurance Corp. have issued information on the host state loan-to-deposit ratios, which are used to determine compliance under Section 109 of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994. Review the ratios in Dodd Frank Update’s Library.